Valero Energy Partners LP (NYSE:VLP) (the “Partnership”) today
reported second quarter 2016 net income attributable to partners of
$49 million, or $0.67 per common limited partner unit.
The Partnership generated earnings before interest, income taxes,
depreciation, and amortization (“EBITDA”) of $64 million and
distributable cash flow of $59 million. VLP’s distribution
coverage ratio for the second quarter was 2.0x.
“We delivered another quarter of solid earnings
and distribution growth, underpinned by our continued focus on safe
and reliable operations,” said Joe Gorder, Chairman and Chief
Executive Officer of VLP’s general partner. “We’re on pace to
grow distributions at our target annual rate of 25 percent through
2017.”
In July, the board of directors of VLP’s general
partner declared a second quarter 2016 cash distribution of $0.365
per unit, representing a 7.4 percent increase from the first
quarter of 2016.
Financial Results Revenues were
$88 million for the second quarter of 2016. Operating
expenses were $21 million, general and administrative expenses were
$4 million, and depreciation expense was $11 million.
Revenues for the Partnership were higher in the second quarter of
2016 compared to the second quarter of 2015 primarily due to
contributions from the Corpus Christi terminals, which were
acquired on October 1, 2015, and the McKee terminal, which was
acquired on April 1, 2016.
“We continue to focus on growing the Partnership
through acquisition and development of logistics assets that
support Valero’s operations,” said Gorder.
Liquidity and Financial
PositionAs of June 30, 2016, the Partnership had $503
million of total liquidity consisting of $67 million of cash
and cash equivalents and $436 million available on its revolving
credit facility. Capital expenditures attributable to the
Partnership in the second quarter of 2016 totaled $3 million,
which includes $1.5 million for expansion and
$1.5 million for maintenance.
The Partnership continues to expect 2016
capital expenditures to be approximately $19 million, of which $11
million is for maintenance and $8 million is for expansion.
Conference CallThe
Partnership’s senior management will host a conference call at 3
p.m. ET today to discuss this earnings release. A live
broadcast of the conference call will be available on the
Partnership’s website at www.valeroenergypartners.com.
About Valero Energy Partners
LPValero Energy Partners LP is a fee-based master limited
partnership formed by Valero Energy Corporation to own, operate,
develop and acquire crude oil and refined products pipelines,
terminals, and other transportation and logistics assets.
With headquarters in San Antonio, the Partnership’s assets
include crude oil and refined petroleum products pipeline and
terminal systems in the Gulf Coast and Mid-Continent regions of the
United States (“U.S.”) that are integral to the operations of nine
of Valero’s refineries. Please visit
www.valeroenergypartners.com for more information.
ContactsInvestors: John Locke,
Vice President – Investor Relations, 210-345-3077Karen Ngo, Manager
– Investor Relations, 210-345-4574
Media: Lillian Riojas, Director – Media
Relations and Communications, 210-345-5002
Safe-Harbor StatementThis
release contains forward-looking statements within the meaning of
federal securities laws. These statements discuss future
expectations, contain projections of results of operations or of
financial condition or state other forward-looking information. You
can identify forward-looking statements by words such as
“anticipate,” “believe,” “estimate,” “expect,” “forecast,”
“project,” “could,” “may,” “should,” “would,” “will” or other
similar expressions that convey the uncertainty of future events or
outcomes. These forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and
other factors, some of which are beyond the Partnership’s control
and are difficult to predict. These statements are often based upon
various assumptions, many of which are based, in turn, upon further
assumptions, including examination of historical operating trends
made by the management of the Partnership. Although the Partnership
believes that these assumptions were reasonable when made, because
assumptions are inherently subject to significant uncertainties and
contingencies, which are difficult or impossible to predict and are
beyond its control, the Partnership cannot give assurance that it
will achieve or accomplish these expectations, beliefs or
intentions. When considering these forward-looking
statements, you should keep in mind the risk factors and other
cautionary statements contained in the Partnership’s filings with
the SEC, including the Partnership’s annual reports on Form 10-K
and quarterly reports on Form 10-Q available on the Partnership’s
website at www.valeroenergypartners.com. These risks could cause
the Partnership’s actual results to differ materially from those
contained in any forward-looking statement.
Use of Non-GAAP Financial
InformationThis earnings release and the accompanying
financial tables include financial measures that are not defined
under U.S. generally accepted accounting principles (“GAAP”). These
non-GAAP financial measures include “EBITDA,” “distributable cash
flow,” and “distribution coverage ratio.” We have included
these non-GAAP financial measures to help facilitate the comparison
of operating results between periods. See the accompanying
financial tables in this earnings release for a reconciliation of
these non-GAAP measures to the most directly comparable U.S. GAAP
measures. In note (j) to the tables that accompany this
release, we disclose the reasons why we believe our use of the
non-GAAP financial measures provides useful information.
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE(Thousands of
Dollars, Except per Unit
Amounts)(Unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Statement of
income data (a): |
|
|
|
|
|
Operating
revenues – related party (b) |
$ |
87,664 |
|
|
$ |
60,245 |
|
|
$ |
166,431 |
|
|
$ |
102,131 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Operating
expenses (c) |
20,520 |
|
|
22,191 |
|
|
41,397 |
|
|
46,487 |
|
General
and administrative expenses (d) |
3,578 |
|
|
3,312 |
|
|
7,806 |
|
|
7,024 |
|
Depreciation expense (e) |
10,622 |
|
|
9,904 |
|
|
21,243 |
|
|
19,343 |
|
Total
costs and expenses |
34,720 |
|
|
35,407 |
|
|
70,446 |
|
|
72,854 |
|
Operating
income |
52,944 |
|
|
24,838 |
|
|
95,985 |
|
|
29,277 |
|
Other
income, net |
57 |
|
|
26 |
|
|
134 |
|
|
137 |
|
Interest
and debt expense, net of capitalized interest (f) |
(3,251 |
) |
|
(1,411 |
) |
|
(5,910 |
) |
|
(2,012 |
) |
Income
before income taxes |
49,750 |
|
|
23,453 |
|
|
90,209 |
|
|
27,402 |
|
Income
tax expense (benefit) (g) |
303 |
|
|
(51 |
) |
|
545 |
|
|
(177 |
) |
Net
income |
49,447 |
|
|
23,504 |
|
|
89,664 |
|
|
27,579 |
|
Less: Net loss attributable to Predecessor |
— |
|
|
(10,158 |
) |
|
(3,081 |
) |
|
(28,204 |
) |
Net
income attributable to partners |
49,447 |
|
|
33,662 |
|
|
92,745 |
|
|
55,783 |
|
Less: General partner’s interest in net income |
5,213 |
|
|
1,357 |
|
|
8,717 |
|
|
2,209 |
|
Limited
partners’ interest in net income |
$ |
44,234 |
|
|
$ |
32,305 |
|
|
$ |
84,028 |
|
|
$ |
53,574 |
|
|
|
|
|
|
|
|
|
Net income per
limited partner unit (basic and diluted): |
|
|
|
|
|
|
|
Common
units |
$ |
0.67 |
|
|
$ |
0.54 |
|
|
$ |
1.28 |
|
|
$ |
0.91 |
|
Subordinated units |
$ |
0.67 |
|
|
$ |
0.54 |
|
|
$ |
1.28 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
Weighted-average limited partner units outstanding (basic
and diluted) (in thousands): |
|
|
|
|
|
|
|
Common
units – public |
21,501 |
|
|
17,250 |
|
|
21,501 |
|
|
17,250 |
|
Common
units – Valero |
15,747 |
|
|
13,448 |
|
|
15,383 |
|
|
12,816 |
|
Subordinated units – Valero |
28,790 |
|
|
28,790 |
|
|
28,790 |
|
|
28,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Earnings Release. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE(Thousands of
Dollars, Except per Unit and per Barrel
Amounts)(Unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Operating
highlights (a): |
|
|
|
|
|
Pipeline
transportation: |
|
|
|
|
|
|
|
Pipeline
transportation revenues (b) |
$ |
19,318 |
|
|
$ |
19,967 |
|
|
$ |
39,563 |
|
|
$ |
39,842 |
|
Pipeline
transportation throughput (BPD) (h) |
850,516 |
|
|
953,123 |
|
|
884,725 |
|
|
966,399 |
|
Average
pipeline transportation revenue per barrel (i) |
$ |
0.25 |
|
|
$ |
0.23 |
|
|
$ |
0.25 |
|
|
$ |
0.23 |
|
Terminaling: |
|
|
|
|
|
|
|
Terminaling revenues (b) |
$ |
68,211 |
|
|
$ |
40,143 |
|
|
$ |
126,598 |
|
|
$ |
62,019 |
|
Terminaling throughput (BPD) |
2,146,293 |
|
|
1,379,757 |
|
|
1,998,077 |
|
|
1,095,173 |
|
Average
terminaling revenue per barrel (i) |
$ |
0.35 |
|
|
$ |
0.32 |
|
|
$ |
0.35 |
|
|
$ |
0.31 |
|
Storage
revenues |
$ |
135 |
|
|
$ |
135 |
|
|
$ |
270 |
|
|
$ |
270 |
|
Total
operating revenues – related party |
$ |
87,664 |
|
|
$ |
60,245 |
|
|
$ |
166,431 |
|
|
$ |
102,131 |
|
Capital
expenditures (a): |
|
|
|
|
|
|
|
Maintenance |
$ |
1,518 |
|
|
$ |
2,129 |
|
|
$ |
3,520 |
|
|
$ |
6,649 |
|
Expansion |
1,540 |
|
|
4,174 |
|
|
5,805 |
|
|
11,642 |
|
Total
capital expenditures |
3,058 |
|
|
6,303 |
|
|
9,325 |
|
|
18,291 |
|
Less:
Capital expenditures attributable to Predecessor |
— |
|
|
5,229 |
|
|
— |
|
|
15,932 |
|
Capital
expenditures attributable to Partnership |
$ |
3,058 |
|
|
$ |
1,074 |
|
|
$ |
9,325 |
|
|
$ |
2,359 |
|
Other financial
information: |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
58,875 |
|
|
$ |
34,985 |
|
|
$ |
107,933 |
|
|
$ |
40,913 |
|
Distributable cash flow (j) |
$ |
58,848 |
|
|
$ |
40,051 |
|
|
$ |
109,945 |
|
|
$ |
67,503 |
|
Distribution declared per unit |
$ |
0.3650 |
|
|
$ |
0.2925 |
|
|
$ |
0.7050 |
|
|
$ |
0.5700 |
|
Distribution declared: |
|
|
|
|
|
|
|
Limited
partner units – public |
$ |
7,854 |
|
|
$ |
5,048 |
|
|
$ |
15,169 |
|
|
$ |
9,838 |
|
Limited
partner units – Valero |
16,256 |
|
|
12,355 |
|
|
31,399 |
|
|
24,076 |
|
General
partner units – Valero |
4,802 |
|
|
1,053 |
|
|
7,952 |
|
|
1,808 |
|
Total
distribution declared |
$ |
28,912 |
|
|
$ |
18,456 |
|
|
$ |
54,520 |
|
|
$ |
35,722 |
|
Distribution coverage ratio: Distributable cash flow divided by
total distribution declared (j) |
2.04x |
|
2.17x |
|
2.02x |
|
1.89x |
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
|
|
|
2016 |
|
2015 |
Balance sheet
data (a): |
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
|
|
$ |
67,167 |
|
|
$ |
80,783 |
|
Total
assets |
|
|
|
|
895,670 |
|
|
902,666 |
|
Current portion of debt and capital lease obligations |
|
|
|
250 |
|
|
913 |
|
Debt and capital lease obligations, less current portion |
|
|
|
684,065 |
|
|
545,246 |
|
Total
debt and capital lease obligations |
|
|
|
|
684,315 |
|
|
546,159 |
|
Partners’
capital |
|
|
|
|
198,005 |
|
|
342,712 |
|
Working
capital |
|
|
|
|
79,908 |
|
|
86,231 |
|
|
|
See Notes to Earnings Release. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASERECONCILIATION
OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S.
GAAP (j)(Thousands of
Dollars)(Unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Reconciliation
of net income to EBITDA and distributable cash flow (a)
(j): |
|
|
|
|
|
|
|
Net
income |
$ |
49,447 |
|
|
$ |
23,504 |
|
|
$ |
89,664 |
|
|
$ |
27,579 |
|
Plus: |
|
|
|
|
|
|
|
Depreciation expense |
10,622 |
|
|
9,904 |
|
|
21,243 |
|
|
19,343 |
|
Interest
and debt expense, net of capitalized interest |
3,251 |
|
|
1,411 |
|
|
5,910 |
|
|
2,012 |
|
Income
tax expense (benefit) |
303 |
|
|
(51 |
) |
|
545 |
|
|
(177 |
) |
EBITDA |
63,623 |
|
|
34,768 |
|
|
117,362 |
|
|
48,757 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
(7,969 |
) |
|
(1,848 |
) |
|
(21,790 |
) |
EBITDA
attributable to Partnership |
63,623 |
|
|
42,737 |
|
|
119,210 |
|
|
70,547 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
221 |
|
|
24 |
|
|
235 |
|
|
4 |
|
Projects
prefunded by Valero |
— |
|
|
— |
|
|
— |
|
|
589 |
|
Other |
— |
|
|
— |
|
|
— |
|
|
384 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
2,982 |
|
|
1,406 |
|
|
5,484 |
|
|
1,578 |
|
Income
taxes paid |
496 |
|
|
441 |
|
|
496 |
|
|
441 |
|
Maintenance capital expenditures |
1,518 |
|
|
863 |
|
|
3,520 |
|
|
2,002 |
|
Distributable cash flow |
$ |
58,848 |
|
|
$ |
40,051 |
|
|
$ |
109,945 |
|
|
$ |
67,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Earnings Release. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASERECONCILIATION
OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S.
GAAP (j)(Thousands of
Dollars)(Unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Reconciliation
of net cash provided by operating activities to EBITDA and
distributable cash flow (a) (j): |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
58,875 |
|
|
$ |
34,985 |
|
|
$ |
107,933 |
|
|
$ |
40,913 |
|
Plus: |
|
|
|
|
|
|
|
Changes
in current assets and current liabilities |
1,456 |
|
|
(1,682 |
) |
|
3,442 |
|
|
6,073 |
|
Changes
in deferred charges and credits and other operating activities,
net |
(138 |
) |
|
(41 |
) |
|
(249 |
) |
|
(459 |
) |
Interest
and debt expense, net of capitalized interest |
3,251 |
|
|
1,411 |
|
|
5,910 |
|
|
2,012 |
|
Current
income tax expense |
179 |
|
|
95 |
|
|
326 |
|
|
218 |
|
EBITDA |
63,623 |
|
|
34,768 |
|
|
117,362 |
|
|
48,757 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
(7,969 |
) |
|
(1,848 |
) |
|
(21,790 |
) |
EBITDA
attributable to Partnership |
63,623 |
|
|
42,737 |
|
|
119,210 |
|
|
70,547 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
221 |
|
|
24 |
|
|
235 |
|
|
4 |
|
Projects
prefunded by Valero |
— |
|
|
— |
|
|
— |
|
|
589 |
|
Other |
— |
|
|
— |
|
|
— |
|
|
384 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
2,982 |
|
|
1,406 |
|
|
5,484 |
|
|
1,578 |
|
Income
taxes paid |
496 |
|
|
441 |
|
|
496 |
|
|
441 |
|
Maintenance capital expenditures |
1,518 |
|
|
863 |
|
|
3,520 |
|
|
2,002 |
|
Distributable cash flow |
$ |
58,848 |
|
|
$ |
40,051 |
|
|
$ |
109,945 |
|
|
$ |
67,503 |
|
|
See Notes to Earnings Release. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE(Thousands of
Dollars)(Unaudited)
The following tables present our statements of
income for the three and six months ended June 30, 2015.
Previously reported financial results have been adjusted for the
acquisitions of the Corpus Christi Terminal Services Business and
the McKee Terminal Services Business. See Note (a) of
Notes to Earnings Release for a discussion of the basis of
this presentation.
|
Three Months Ended June 30, 2015 |
|
Valero Energy Partners LP (Previously
Reported) |
|
Corpus Christi Terminal Services Business
(April 1, 2015 to June 30, 2015) |
|
McKee Terminal Services
Business(April 1, 2015 toJune 30,
2015) |
|
Valero EnergyPartners
LP(CurrentlyReported) |
Operating revenues –
related party (b) |
$ |
60,245 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
60,245 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Operating
expenses |
14,374 |
|
|
6,131 |
|
|
1,686 |
|
|
22,191 |
|
General
and administrative expenses |
3,160 |
|
|
89 |
|
|
63 |
|
|
3,312 |
|
Depreciation expense |
7,715 |
|
|
1,064 |
|
|
1,125 |
|
|
9,904 |
|
Total
costs and expenses |
25,249 |
|
|
7,284 |
|
|
2,874 |
|
|
35,407 |
|
Operating income
(loss) |
34,996 |
|
|
(7,284 |
) |
|
(2,874 |
) |
|
24,838 |
|
Other income, net |
26 |
|
|
— |
|
|
— |
|
|
26 |
|
Interest and debt
expense, net of capitalized interest |
(1,411 |
) |
|
— |
|
|
— |
|
|
(1,411 |
) |
Income (loss) before
income taxes |
33,611 |
|
|
(7,284 |
) |
|
(2,874 |
) |
|
23,453 |
|
Income tax benefit |
(51 |
) |
|
— |
|
|
— |
|
|
(51 |
) |
Net income (loss) |
33,662 |
|
|
(7,284 |
) |
|
(2,874 |
) |
|
23,504 |
|
Less: Net loss attributable to Predecessor |
— |
|
|
(7,284 |
) |
|
(2,874 |
) |
|
(10,158 |
) |
Net income attributable
to partners |
$ |
33,662 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
33,662 |
|
|
Six Months Ended June 30, 2015 |
|
Valero Energy Partners LP (Previously
Reported) |
|
Corpus Christi Terminal Services Business
(January 1, 2015 to June 30, 2015) |
|
McKee Terminal Services Business (January 1,
2015 to June 30, 2015) |
|
Valero EnergyPartners
LP(CurrentlyReported) |
Operating revenues –
related party (b) |
$ |
102,131 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
102,131 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Operating
expenses |
32,238 |
|
|
10,891 |
|
|
3,358 |
|
|
46,487 |
|
General
and administrative expenses |
6,725 |
|
|
176 |
|
|
123 |
|
|
7,024 |
|
Depreciation expense |
15,203 |
|
|
1,886 |
|
|
2,254 |
|
|
19,343 |
|
Total
costs and expenses |
54,166 |
|
|
12,953 |
|
|
5,735 |
|
|
72,854 |
|
Operating income
(loss) |
47,965 |
|
|
(12,953 |
) |
|
(5,735 |
) |
|
29,277 |
|
Other income, net |
137 |
|
|
— |
|
|
— |
|
|
137 |
|
Interest and debt
expense, net of capitalized interest |
(2,012 |
) |
|
— |
|
|
— |
|
|
(2,012 |
) |
Income (loss) before
income taxes |
46,090 |
|
|
(12,953 |
) |
|
(5,735 |
) |
|
27,402 |
|
Income tax benefit |
(177 |
) |
|
— |
|
|
— |
|
|
(177 |
) |
Net income (loss) |
46,267 |
|
|
(12,953 |
) |
|
(5,735 |
) |
|
27,579 |
|
Less: Net loss attributable to Predecessor |
(9,516 |
) |
|
(12,953 |
) |
|
(5,735 |
) |
|
(28,204 |
) |
Net income attributable
to partners |
$ |
55,783 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
55,783 |
|
|
See Notes to
Earnings Release. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE(Thousands of
Dollars)(Unaudited)
The following table presents our balance sheet
data as of December 31, 2015, giving effect to the acquisition of
the McKee Terminal Services Business. See Note (a) of Notes to
Earnings Release for a discussion of the basis of this
presentation.
|
|
December 31, 2015 |
|
|
Valero EnergyPartners
LP(PreviouslyReported) |
|
McKee Terminal Services Business |
|
Valero EnergyPartners
LP(CurrentlyReported) |
Cash and cash
equivalents |
|
$ |
80,783 |
|
|
$ |
— |
|
|
$ |
80,783 |
|
Total assets |
|
850,107 |
|
|
52,559 |
|
|
902,666 |
|
Current portion of debt
and capital lease obligations |
|
913 |
|
|
— |
|
|
913 |
|
Debt and capital lease
obligations, less current portion |
|
545,246 |
|
|
— |
|
|
545,246 |
|
Total debt and capital
lease obligations |
|
546,159 |
|
|
— |
|
|
546,159 |
|
Partners’ capital |
|
290,153 |
|
|
52,559 |
|
|
342,712 |
|
Working capital |
|
86,231 |
|
|
— |
|
|
86,231 |
|
|
See Notes to Earnings Release. |
|
VALERO ENERGY PARTNERS
LPNOTES TO EARNINGS RELEASE
(a) References to “Partnership,” “we,” “us,” or
“our” refer to Valero Energy Partners LP, one or more of its
subsidiaries, or all of them taken as a whole. For businesses that
we acquired from Valero, those terms refer to Valero Energy
Partners LP Predecessor, our Predecessor for accounting purposes.
References in these notes to “Valero” may refer to Valero Energy
Corporation, one or more of its subsidiaries, or all of them taken
as a whole, other than Valero Energy Partners LP, any of its
subsidiaries, or its general partner.
Effective April 1, 2016, we acquired the
McKee Terminal Services Business from Valero for total
consideration of $240.0 million consisting of (i) cash of $204.0
million and (ii) the issuance of 728,775 common units representing
limited partner interests in us and 14,873 general partner units
representing general partner interests in us having an aggregate
value, collectively, of $36.0 million. We funded the cash
distribution to Valero with $65.0 million of our cash on hand and
$139.0 million of borrowings under our revolving credit facility.
We began receiving fees for services provided by this business
commencing on April 1, 2016.
Effective October 1, 2015, we acquired the
Corpus Christi Terminal Services Business from Valero for total
consideration of $465.0 million and began receiving fees for
services provided by this business commencing on
October 1, 2015.
The above-mentioned acquisitions were each
accounted for as transfers of a business between entities under the
common control of Valero. Accordingly, the statement of income
data, operating highlights, and capital expenditures data have been
retrospectively adjusted to include the historical results of
operations of the acquired businesses for periods prior to their
dates of acquisition.
(b) In addition to the businesses described in
Note (a), we acquired the Houston and St. Charles Terminal
Services Business from Valero effective March 1, 2015. Prior to
being acquired by us, the businesses did not charge Valero for
services provided and did not generate revenues. Effective with the
date of each acquisition, we entered into additional schedules to
our commercial agreements with Valero with respect to the services
we provide to Valero using the assets of the acquired businesses.
This resulted in new charges for terminaling services provided by
these assets.
(c) The decrease in operating expenses in the
three months ended June 30, 2016 compared to the three months
ended June 30, 2015 was due primarily to lower maintenance
expense of $1.6 million at the Corpus Christi terminals
related to inspection activity.
The decrease in operating expenses in the six
months ended June 30, 2016 compared to the six months ended
June 30, 2015 was due primarily to lower maintenance expense
of $3.9 million at the Corpus Christi and St. Charles
terminals related to inspection activity. Additionally, waste
handling costs at the Corpus Christi and St. Charles terminals
decreased $2.0 million in the six months ended June 30, 2016.
The decrease in these expenses was partially offset by an increase
in insurance expense of $867,000 as a result of the acquired assets
being covered under our own insurance policies. Prior to the
acquisitions, our Predecessor was allocated a portion of Valero’s
insurance costs.
(d) The increase in general and administrative
expenses in the three months ended June 30, 2016 compared to
the three months ended June 30, 2015 was due primarily to
incremental costs of $198,000 related to the management fee charged
to us by Valero for the Corpus Christi Terminal Services Business
and McKee Terminal Services Business.
The increase in general and administrative
expenses in the six months ended June 30, 2016 compared to the
six months ended June 30, 2015 was due primarily to
incremental costs of $464,000 related to the management fee charged
to us by Valero for the Corpus Christi Terminal Services Business
and McKee Terminal Services Business and an increase of $476,000 in
costs related to being a separate publicly traded limited
partnership. These increases were offset by lower transactions
costs of $159,000 associated with the acquisition of businesses
from Valero. In 2016, we incurred transactions costs of $387,000 in
connection with the April 1, 2016 acquisition of the McKee Terminal
Services Business. In 2015, we incurred transaction costs of
$546,000 in connection with the March 1, 2015 acquisition
of the Houston and St. Charles Terminal Services Business.
(e) The increase in depreciation expense in the
three and six months ended June 30, 2016 compared to the three
and six months ended June 30, 2015 was due primarily to
additional depreciation expense associated with assets placed into
service in 2015, including expansion and improvement projects at
our Corpus Christi and St. Charles terminals.
(f) The increase in “interest and debt expense,
net of capitalized interest” in the three and six months ended
June 30, 2016 compared to the three and six months ended
June 30, 2015 was due primarily to interest expense incurred
on borrowings under our revolving credit facility and under the
subordinated credit agreements with Valero entered into in
connection with the acquisitions described in Note (a) as well as
the Houston and St. Charles Terminal Services Business acquisition
on March 1, 2015. Interest expense on this indebtedness was
$3.0 million and $5.3 million in the three and six months
ended June 30, 2016, respectively, compared to $1.3 million
and $1.7 million in the three and six months ended
June 30, 2015.
(g) Our income tax expense is associated with
the Texas margin tax. During the six months ended June 30,
2015, we reduced our deferred income tax liabilities due to a
reduction in the relative amount of revenue we generate in Texas
compared to our total revenue. This reduction was a result of the
acquisition of the Houston and St. Charles Terminal Services
Business on March 1, 2015 (which includes operations in Louisiana).
In addition, in June 2015, the Texas margin tax rate was reduced
from 1 percent to 0.75 percent, which resulted in a tax benefit in
the three months ended June 30, 2015.
(h) Represents the sum of volumes transported through each
separately tariffed pipeline segment.
(i) Management uses average revenue per barrel
to evaluate performance and compare profitability to other
companies in the industry. There are a variety of ways to calculate
average revenue per barrel; different companies may calculate it in
different ways. We calculate average revenue per barrel as revenue
divided by throughput for the period. Throughput is derived by
multiplying the throughput barrels per day (BPD) by the number of
days in the period. Investors and analysts use this financial
measure to help analyze and compare companies in the industry on
the basis of operating performance.
(j) Defined terms are as follows:
- EBITDA is defined as net income less income
tax expense, interest expense, and depreciation expense.
- Distributable cash flow is defined as EBITDA
less (i) EBITDA attributable to Predecessor and cash payments
during the period for interest, income taxes, and maintenance
capital expenditures; plus (ii) adjustments related to minimum
throughput commitments, capital projects prefunded by Valero, and
certain other items.
- Distribution coverage ratio is defined as the
ratio of distributable cash flow to the total distribution
declared.
These terms are not defined under United States
(U.S.) generally accepted accounting principles (GAAP) and are
considered non-GAAP measures. Management has defined these terms
and believes that the presentation of the associated measures is
useful to external users of our financial statements, such as
industry analysts, investors, lenders, and rating agencies, to:
- describe our expectation of forecasted earnings;
- assess our operating performance as compared to other publicly
traded limited partnerships in the transportation and logistics
industry, without regard to historical cost basis or, in the case
of EBITDA, financing methods;
- assess the ability of our business to generate sufficient cash
to support our decision to make distributions to our
unitholders;
- assess our ability to incur and service debt and fund capital
expenditures; and
- assess the viability of acquisitions and other capital
expenditure projects and the returns on investment of various
investment opportunities.
We believe that the presentation of EBITDA
provides useful information to investors in assessing our financial
condition and results of operations. The U.S. GAAP measures most
directly comparable to EBITDA are net income and net cash provided
by operating activities. EBITDA should not be considered an
alternative to net income or net cash provided by operating
activities presented in accordance with U.S. GAAP. EBITDA has
important limitations as an analytical tool because it excludes
some, but not all, items that affect net income or net cash
provided by operating activities. EBITDA should not be considered
in isolation or as a substitute for analysis of our results as
reported under U.S. GAAP. Additionally, because EBITDA may be
defined differently by other companies in our industry, our
definition of EBITDA may not be comparable to similarly titled
measures of other companies, thereby diminishing its utility.
We use distributable cash flow to measure
whether we have generated from our operations, or “earned,” an
amount of cash sufficient to support the payment of the minimum
quarterly distributions. Our partnership agreement contains the
concept of “operating surplus” to determine whether our operations
are generating sufficient cash to support the distributions that we
are paying, as opposed to returning capital to our partners.
Because operating surplus is a cumulative concept (measured from
our initial public offering (IPO) date and compared to cumulative
distributions from the IPO date), we use the term distributable
cash flow to approximate operating surplus on a quarterly or
annual, rather than a cumulative, basis. As a result, distributable
cash flow is not necessarily indicative of the actual cash we have
on hand to distribute or that we are required to distribute.
We use the distribution coverage ratio to
reflect the relationship between our distributable cash flow and
the total distribution declared.
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